The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included in Item 1 in this Quarterly Report on Form 10-Q, or this Quarterly Report. The following discussion should also be read in conjunction with our audited consolidated financial statements and the notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . Unless otherwise provided in this Quarterly Report, references to the "Company," "we," "us," and "our" refer toPuma Biotechnology, Inc. , aDelaware corporation, together with its wholly owned subsidiaries. Overview We are a biopharmaceutical company with a focus on the development and commercialization of innovative products to enhance cancer care. We in-licensed from Pfizer, Inc., or Pfizer, the global development and commercialization rights to PB272 (neratinib, oral), PB272 (neratinib, intravenous) and PB357. Neratinib is a potent irreversible tyrosine kinase inhibitor, or TKI, that blocks signal transduction through the human epidermal growth factor receptors, HER1, HER2 and HER4. Currently, we are primarily focused on the development and commercialization of the oral version of neratinib, our most advanced drug candidate is directed at the treatment of HER2-positive breast cancer and HER2 mutated cancers. We believe neratinib has clinical application in the treatment of several other cancers as well, including other tumor types that over-express or have a mutation in HER2 or EGFR, such as breast cancer, cervical cancer, lung cancer or other solid tumors. Prior to 2017, our efforts and resources had been focused primarily on acquiring and developing our pharmaceutical technologies, raising capital and recruiting personnel. In 2017, theU.S. Food and Drug Administration , or FDA, approved NERLYNX, formally known as PB272 (neratinib, oral), for the extended adjuvant treatment of adult patients with early stage HER2-overexpressed/amplified breast cancer following adjuvant trastuzumab-based therapy. InFebruary 2020 , NERLYNX was also approved by the FDA in combination with capecitabine for the treatment of adult patients with advanced or metastatic HER2-positive breast cancer who have received two or more prior anti-HER2-based regimens in the metastatic setting. In 2018, theEuropean Commission , or EC, granted marketing authorization for NERLYNX in theEuropean Union for the extended adjuvant treatment of adult patients with early-stage hormone receptor positive HER2-overexpressed/amplified breast cancer and who are less than one year from the completion of prior adjuvant trastuzumab-based therapy. We have entered into exclusive sub-license agreements with various parties to pursue regulatory approval, if necessary, and commercialize NERLYNX, if approved, in numerous regions outsidethe United States , includingEurope (excludingRussia andUkraine ),Australia ,Canada ,China ,Southeast Asia ,Israel ,Mexico ,South Korea , and various countries and territories in Central andSouth America . We plan to continue to pursue commercialization of NERLYNX in other countries outsidethe United States , if approved. InJuly 2021 , our Canadian partner, Knight Therapeutics, Inc., receivedHealth Canada's approval of an alternate dosing regimen (two-week dose escalation) to be incorporated into the prescribing information. OnJuly 23, 2021 , we entered into a note purchase agreement with Athyrium Opportunities IV Co-Invest 1 LP ("Athyrium") for an aggregate principal amount of$100.0 million . The borrowings under the Athyrium Note Purchase Agreement ("Athyrium Notes"), together with cash on hand, were used to repay the outstanding indebtedness, including the applicable exit and prepayment fees owed to lenders under our Oxford Credit facility. See Note 10, Debt for further details regarding both the Athyrium Notes and Oxford Loan and Security Agreement. Our expenses to date have been related to hiring staff, commencing company-sponsored clinical trials and the build out of our corporate infrastructure and, since 2017, the commercial launch of NERLYNX. Accordingly, our success depends not only on the safety and efficacy of our product candidates, but also on our ability to finance product development. To date, our major sources of working capital have been proceeds from product and license revenue, public offerings of our common stock, proceeds from our credit facility and sales of our common stock in private placements. Impact of COVID-19 Our priorities during the COVID-19 pandemic continue to be focused on protecting the health and safety of our employees while delivering on our mission to develop and commercialize innovative products to enhance cancer care. Substantially all geographic regions in which ourU.S. sales force operates have imposed restrictions and may in the future change or impose additional restrictions to control or limit the spread of COVID-19 and its variants. These restrictions include, but are not limited to "shelter-in-place" orders, quarantines, testing requirements or similar orders or restrictions. These types of restrictions may deter or prevent cancer patients from traveling to see their doctors and result in a decline in revenue for NERLYNX, our only commercial product. Additionally, the impact of COVID-19 has significantly reduced the ability of our commercial team and our sales force to travel and interact personally with physicians and members of the extended healthcare team. This has reduced our commercial team's access to healthcare providers, and a large portion of its promotional activities are now being conducted virtually. Although we have seen some recent easing of local restrictions, these have been inconsistent and have not led to a broad relaxation of requirements. These types of restrictions have adversely impacted our ability to engage with our customers and have adversely impacted sales of NERLYNX, and they may continue to do so. The respective commercial teams affiliated with certain companies to which we sub-license the commercial rights to NERLYNX, and on which we rely for our international sales, have chosen or have been forced to take similar action, and other sub-licensees of NERLYNX may choose or be forced to take similar action in the future. Furthermore, the COVID-19 pandemic has resulted in dramatic increases in unemployment rates, which may result in a substantial number of people becoming uninsured or underinsured. Any of these developments may have an adverse effect on our revenue. We have observed disruptions in patient enrollments inthe United States and in our Phase II SUMMIT basket trial. If the COVID-19 pandemic continues to spread in the geographies in which we are conducting clinical trials, we may experience additional disruptions in those clinical trials, which could have a material adverse impact on our clinical trial plans and timelines. 34
--------------------------------------------------------------------------------
Table of Contents
Our ability to continue to operate without any significant negative impacts will in part depend on the length and severity of the COVID-19 pandemic and our ability to protect our employees and our supply chain. We continue to follow and monitor recommended actions of government and health authorities to protect our employees worldwide. For the nine months endedSeptember 30, 2021 , we and our key third-party suppliers and manufacturers were able to broadly maintain operations. We rely exclusively on third-party manufacturers to manufacture NERLYNX. OnOctober 29, 2021 , the parties to our class action lawsuit informed the court that they had reached a settlement in principle, and the court entered judgment in the amount of claimed damages and prejudgment interest totaling approximately$54.2 million . OnNovember 2, 2021 , the court dismissed the case in light of the parties' settlement, retaining jurisdiction only for settlement approval. The parties' settlement in principle provides that there will be no judgment for liability entered against us orMr. Auerbach , and provides for payment by us of approximately$54.2 million in two installments, to be paid in January and June of 2022. The settlement in principle is subject to execution of a formal settlement agreement to be negotiated among the parties, which agreement will be submitted to the court for approval. For additional detail regarding the class action lawsuit, see Part II. Item 1. Legal Proceedings in this Quarterly Report on Form 10-Q. We intend to satisfy our near-term liquidity requirements through a combination of our existing cash and cash equivalents and marketable securities as ofSeptember 30, 2021 and proceeds that will become available to us through product sales, royalties and sub-license milestone payments. However, this intention is based on assumptions that may prove to be wrong. Changes may occur that would consume our available capital faster than anticipated, including the length and severity of the COVID-19 pandemic and measures taken to control the spread of COVID-19, as well as changes in and progress of our development activities, the impact of commercialization efforts, acquisitions of additional drug candidates and changes in regulation. Some of these developments have had and may continue to have an adverse effect on our revenue and thus could have an adverse effect on our ability to satisfy the minimum revenue covenants in our Note Purchase Agreement. Our consolidated financial statements as of and for the three and nine months endedSeptember 30, 2021 have been prepared on the basis that we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Based on our cash and marketable securities balances, recurring losses since inception and recent developments in our class action litigation, there is substantial doubt about our ability to continue as a going concern, due to our minimum cash financial covenant. Our ability to continue as a going concern is dependent upon our ability to raise additional capital to sustain operations and continue to commercialize neratinib. We cannot assure you that such funding will be available on commercially reasonable terms, or at all. Critical Accounting Policies As of the date of the filing of this Quarterly Report, we believe there have been no material changes to our critical accounting policies and estimates during the nine months endedSeptember 30, 2021 from our accounting policies atDecember 31, 2020 , as reported in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 . We accounted for the following related to sub-license agreements and our legal contingencies and expense during the nine months endedSeptember 30, 2021 : License Revenue: We recognize license revenue under certain of our sub-license agreements that are within the scope of ASC 606. The terms of these agreements may contain multiple performance obligations, which may include licenses and research and development activities. We evaluate these agreements under ASC 606 to determine the distinct performance obligations. Non-refundable, up-front fees that are not contingent on any future performance and require no consequential continuing involvement by us, are recognized as revenue when the license term commences and the licensed data, technology or product is delivered. We defer recognition of non-refundable upfront license fees if the performance obligations are not satisfied. Prior to recognizing revenue, we make estimates of the transaction price, including variable consideration that is subject to a constraint. Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur and when the uncertainty associated with the variable consideration is subsequently resolved. Variable consideration may include nonrefundable upfront license fees, payments for research and development activities, reimbursement of certain third-party costs, payments based upon the achievement of specified milestones, and royalty payments based on product sales derived from the collaboration. If there are multiple distinct performance obligations, we allocate the transaction price to each distinct performance obligation based on its relative standalone selling price. The standalone selling price is generally determined based on the prices charged to customers or using expected cost-plus margin. Revenue is recognized by measuring the progress toward complete satisfaction of the performance obligations.
Legal Contingencies and Expense:
For legal contingencies, we accrue a liability for an estimated loss if the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated. Legal fees and expenses are expensed as incurred based on invoices or estimates provided by legal counsel. We periodically evaluate available information, both internal and external, relative to such contingencies and adjust the accrual as necessary. We determine whether a contingency should be disclosed by assessing whether a material loss is deemed reasonably possible. In determining whether a loss should be accrued, we evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of the loss (see Note 13, Commitments and Contingencies in the accompanying notes to the financial statements). 35
--------------------------------------------------------------------------------
Table of Contents
Summary of Income and Expenses
Product revenue, net: Product revenue, net consists of revenue from sales of NERLYNX. We sell NERLYNX to a limited number of specialty pharmacies and specialty distributors inthe United States . We record revenue at the net sales price, which includes an estimate for variable consideration for which reserves are established. Variable consideration consists of trade discounts and allowances, product returns, provider chargebacks and discounts, government rebates and other incentives. License revenue:
License revenue consists of consideration earned for performance obligations satisfied pursuant to our sub-license agreements.
Royalty revenue: Royalty revenue consists of consideration earned related to product sales made by our sub-licensees in their respective territories pursuant to our sub-license agreements. Cost of sales: Cost of sales consists of third-party manufacturing costs, freight, and indirect overhead costs associated with sales of NERLYNX. Cost of sales also includes period costs related to royalty charges payable to Pfizer, the amortization of milestone payments made to Pfizer, certain inventory manufacturing services, inventory adjustment charges, unabsorbed manufacturing and overhead costs, and manufacturing variances.
Selling, general and administrative expenses:
Selling, general and administrative expenses, or SG&A Expenses, consist primarily of salaries and payroll-related costs, stock-based compensation expense, professional fees, business insurance, rent, general legal activities, credit loss expense and other corporate expenses. We expense SG&A Expenses as they are incurred.
Research and development expenses:
Research and development expenses, or R&D Expenses, include costs associated with services provided by consultants who conduct and perform clinical services on our behalf and contract organizations for the manufacturing of clinical materials. During the three and nine months endedSeptember 30, 2021 and 2020, our R&D Expenses consisted primarily of clinical research organization, or CRO, fees; fees paid to consultants; salaries and related personnel costs; and stock-based compensation. We expense our R&D Expenses as they are incurred. Internal R&D Expenses primarily consist of payroll-related costs and also include equipment costs, travel expenses and supplies. 36
--------------------------------------------------------------------------------
Table of Contents Results of Operations
Three Months Ended
Total revenue: For the three months endedSeptember 30, 2021 , total revenue was approximately$46.2 million , compared to$50.8 million for the three months endedSeptember 30, 2020 . Product revenue, net: Product revenue, net was approximately$43.4 million for the three months endedSeptember 30, 2021 , compared to$49.3 million for the three months endedSeptember 30, 2020 . This decrease in product revenue, net was primarily attributable to a volume decrease of approximately 18.0% in bottles of NERLYNX sold and an increase in reserves for variable consideration from approximately 15.8% of product revenue for the three months endedSeptember 30, 2020 compared to approximately 19.4% of product revenue, for the three months endedSeptember 30, 2021 offset by increases in the gross selling price that occurred in the third quarter of 2020 and in the first and third quarter of 2021. The increase in reserves for variable consideration is primarily due to an increase in Medicaid claims and government chargebacks as a percentage of gross revenue. Royalty revenue:
Royalty revenue was approximately
Cost of sales: Cost of sales was approximately$10.3 million for the three months endedSeptember 30, 2021 , compared to$9.9 million for the three months endedSeptember 30, 2020 . The increase was primarily attributable to the increase in the amortization of the intangible asset under our license agreement with Pfizer and increased royalty expense due to Pfizer. 37
--------------------------------------------------------------------------------
Table of Contents
Selling, general and administrative expenses:
For the three months endedSeptember 30, 2021 , SG&A Expenses were approximately$26.1 million , compared to approximately$29.6 million for the three months endedSeptember 30, 2020 . SG&A Expenses for the three months endedSeptember 30, 2021 and 2020 were as follows:
Selling, general, and administrative expenses For the Three Months Ended
Change (in thousands) September 30, $ % 2021 2020 2021/2020 2021/2020 Payroll and related costs$ 9,514 $ 10,274 $ (760 ) -7.4 % Professional fees and expenses 9,612 11,271 (1,659 ) -14.7 % Travel and meetings 1,338 1,090 248 22.8 % Facilities and equipment costs 1,380 1,412 (32 ) -2.3 % Stock-based compensation 2,948 4,101 (1,153 ) -28.1 % Other 1,292 1,450 (158 ) -10.9 %$ 26,084 $ 29,598 $ (3,514 ) -11.9 %
For the three months ended
? a decrease in professional fees and expenses of approximately
consisting of approximately
associated with marketing and commercialization support, and a decrease of
approximately$0.4 million in legal fees;
? a decrease in stock-based compensation expense of approximately
primarily due to a decrease of approximately
that have fully vested and a decrease of approximately
awards forfeited, partially offset by an increase of approximately
million from new grants; and ? a decrease in payroll and related costs of approximately$0.8 million resulting from a reduction in headcount. 38
--------------------------------------------------------------------------------
Table of Contents
Research and development expenses:
For the three months ended
Research and development expenses For the Three Months Ended Change (in thousands) September 30, $ % 2021 2020 2021/2020 2021/2020 Clinical trial expense$ 8,396 $ 8,257 $ 139 1.7 % Internal R&D 7,761 9,441 (1,680 ) -17.8 % Consultant and contractors 1,347 2,183 (836 ) -38.3 % Stock-based compensation 1,332 3,463 (2,131 ) -61.5 %$ 18,836 $ 23,344 $ (4,508 ) -19.3 %
For the three months ended
? a decrease in stock-based compensation expense of approximately
primarily due to a decrease of
vested and a decrease of approximately
forfeited, partially offset by an increase of
and ? a decrease in Internal R&D of approximately$1.7 million , primarily due to a reduction in headcount. Other income (expenses): Other income (expenses) For the Three Months Ended Change (in thousands) September 30, $ % 2021 2020 2021/2020 2021/2020 Interest income $ 13$ 22 $ (9 ) -40.9 % Interest expense (3,121 ) (3,627 ) 506 -14.0 % Legal verdict expense (24,498 ) (15,855 ) (8,643 ) 54.5 % Loss on debt extinguishment (8,146 ) - (8,146 ) -100.0 % Other income 71 128 (57 ) -44.5 %$ (35,681 ) $ (19,332 ) $ (16,349 ) 84.6 % Interest expense:
For the three months ended
Legal verdict expense:
For the three months ended
Loss on debt extinguishment:
For the three months ended
39
--------------------------------------------------------------------------------
Table of Contents
Nine Months Ended
Total revenue:
For the nine months ended
Product revenue, net: Product revenue, net was approximately$138.1 million for the nine months endedSeptember 30, 2021 , compared to$146.7 million for the nine months endedSeptember 30, 2020 . The decrease in product revenue, net was attributable to a volume decrease of approximately 16.0% in bottles of NERLYNX sold, and an increase in reserves for variable consideration from approximately 15.5% of product revenue for the nine months endedSeptember 30, 2020 to approximately 18.5% of product revenue for the nine months endedSeptember 30, 2021 . The increase in reserves for variable consideration is primarily due to an increase in Medicaid claims and government chargebacks as a percentage of gross revenue. The decrease in product revenue, net was partially offset by an increase in gross selling price that occurred in the third quarter of 2020 and in the first and third quarter of 2021. License revenue: License revenue was approximately$50.3 million for the nine months endedSeptember 30, 2021 , compared to approximately$22.7 million for the nine months endedSeptember 30, 2020 . The increase in license revenue is due to a large, upfront payment in connection with an amendment to a sub-license agreement entered into during the nine months endedSeptember 30, 2021 . Royalty revenue: Royalty revenue was approximately$9.5 million for the nine months endedSeptember 30, 2021 , compared to$3.1 million for the nine months endedSeptember 30, 2020 . The increase was due to increased product sales by our sub-licensees as they continue to commercialize NERLYNX in additional territories. Cost of sales:
Cost of sales was approximately
40
--------------------------------------------------------------------------------
Table of Contents
Selling, general and administrative expenses:
For the nine months endedSeptember 30, 2021 , SG&A Expenses were approximately$93.8 million , compared to approximately$89.9 million for the nine months endedSeptember 30, 2020 . SG&A Expenses for the nine months endedSeptember 30, 2021 and 2020 were as follows:
Selling, general, and administrative expenses For the Nine Months Ended
Change (in thousands) September 30, $ % 2021 2020 2021/2020 2021/2020 Payroll and related costs$ 30,113 $ 31,658 $ (1,545 ) -4.9 % Professional fees and expenses 30,028 32,252 (2,224 ) -6.9 % Travel and meetings 3,380 4,023 (643 ) -16.0 % Facilities and equipment costs 4,175 4,276 (101 ) -2.4 % Stock-based compensation 23,281 13,523 9,758 72.2 % Other 2,855 4,150 (1,295 ) -31.2 %$ 93,832 $ 89,882 $ 3,950 4.4 %
For the nine months ended
? an increase in stock-based compensation expense of approximately
primarily due to the
modification of the term of
approximately
approximately$5.9 million for fully vested grants and a decrease of approximately$1.3 million for awards forfeited.
This increase was partially offset by:
? a decrease in professional fees and expenses of approximately
consisting of approximately
related to decreased consultancy efforts related to marketing and
commercialization support, and lower audit and IT related expenses of
approximately
$0.4 million in insurance premiums and an increase of approximately$0.7 million in legal fees in connection with various lawsuits;
? a decrease in payroll and related costs of approximately
a reduction in headcount;
? a decrease in other expenses of approximately
of bad debt expense of$1.0 million and other miscellaneous costs; and
? a decrease in travel and meeting related costs of approximately
resulting from COVID travel restrictions. 41
--------------------------------------------------------------------------------
Table of Contents
Research and development expenses:
For the nine months endedSeptember 30, 2021 , R&D expenses were approximately$57.7 million , compared to approximately$73.5 million for the nine months endedSeptember 30, 2020 . R&D expenses for the nine months endedSeptember 30, 2021 and 2020 were as follows: Research and development expenses For the Nine Months Ended Change (in thousands) September 30, $ % 2021 2020 2021/2020 2021/2020 Clinical trial expense$ 21,504 $ 24,130 $ (2,626 ) -10.9 % Internal R&D 26,230 29,564 (3,334 ) -11.3 % Consultant and contractors 4,870 6,218 (1,348 ) -21.7 % Stock-based compensation 5,098 13,578 (8,480 ) -62.5 %$ 57,702 $ 73,490 $ (15,788 ) -21.5 %
For the nine months ended
? a decrease in stock-based compensation expense of approximately
primarily due to a decrease of approximately
grants and a decrease of
by an increase of$1.4 million from new grants;
? a decrease in internal R&D expense of approximately
from a reduction in headcount;
? a decrease in clinical trial expenses of approximately
the close out of certain clinical trials and a reduction in patient enrollments and monitoring costs; and ? a decrease in consultant and contractor expenses of approximately$1.3 million due to the close out of certain clinical trials. Other income (expenses): Other income (expenses) For the Nine Months Ended Change (in thousands) September 30, $ % 2021 2020 2021/2020 2021/2020 Interest income $ 147$ 474 $ (327 ) -69.0 % Interest expense (10,089 ) (10,479 ) 390 -3.7 % Legal verdict expense (9,781 ) (16,041 ) 6,260 -39.0 % Loss on debt extinguishment (8,146 ) - (8,146 ) 0.0 % Other income 173 298 (125 ) -41.9 %$ (27,696 ) $ (25,748 ) $ (1,948 ) 7.6 % 42
--------------------------------------------------------------------------------
Table of Contents
Legal verdict (expense) credit:
For the nine months endedSeptember 30, 2021 , we reduced our legal expense accrual by approximately$20.0 million with respect to the Eshelman v.Puma Biotechnology, Inc. , et al. judgment, and we increased our legal expense accrual by approximately$29.6 million with respect to the Hsu v.Puma Biotechnology, Inc. , et.al judgment, which resulted in a net legal verdict expense of$9.8 million for the period. Loss on debt extinguishment: For the nine months endedSeptember 30, 2021 , we recognized approximately$8.1 million in connection with our repayment and termination of the Oxford Credit Facility, which we replaced with the Athyrium Note. See Item 2. Liquidity and Capital Resources.
Liquidity and Capital Resources
We have reported a net loss of approximately$44.7 million and net loss of approximately$33.4 million for the three and nine months endedSeptember 30, 2021 , respectively. As ofSeptember 30, 2021 , we had approximately$87.5 million in cash and marketable securities. Our commercialization, research and development or marketing efforts may require funding in addition to our current cash and marketable securities. Additionally, in light of recent developments in our class action lawsuit, we may need to make two payments totaling approximately$54.2 million in January andJune 2022 in settlement of the litigation. As a result, the combination of these factors together with our cash and marketable securities balances and recurring losses since inception raise substantial doubt about our ability to continue as a going concern. We may need to obtain additional funding to sustain operations and continue to commercialize neratinib inthe United States . Our ability to obtain additional funding may be adversely impacted by a variety of issues including, uncertain market conditions, the COVID-19 pandemic, our success in commercializing neratinib, unfavorable decisions of regulatory authorities, adverse clinical trial results or the outcomes of outstanding or new litigation. We cannot assure you that such funding will be available on commercially reasonable terms, or at all. While we have been successful in raising capital in the past, there can be no assurance that we will be able to do so in the future. Our ability to obtain funding may be adversely impacted by uncertain market conditions, including the COVID-19 pandemic, our success in commercializing neratinib, unfavorable decisions of regulatory authorities or adverse clinical trial results. The outcome of these matters cannot be predicted at this time.
The following table summarizes our liquidity and capital resources as
of
As of As of
Liquidity and capital resources (in thousands)
December 31, 2020 Cash and cash equivalents $ 63,947 $ 85,293 Marketable securities $ 23,596 $ 8,096 Working capital $ 20,662 $ 31,884 Stockholders' deficit $ (10,922 ) $ (5,951 ) Nine Months Ended Nine Months Ended September 30, 2021 September 30, 2020 Cash provided by (used in): Operating activities $ 26,085 $ 6,408 Investing activities (15,502 ) 22,580 Financing activities (31,929 ) 45 Net increase (decrease) in cash, cash equivalents and restricted cash $ (21,346 ) $ 29,033 43
--------------------------------------------------------------------------------
Table of Contents
OnNovember 2, 2021 , we implemented a restructuring of the organization in part due to the impact of COVID-19 on our sales. The restructuring includes a reduction in headcount of approximately 13% consisting primarily of commercial and research personnel. We anticipate approximately$1.2 million in severance related costs which includes salary, insurance premiums, and sales commissions. This cost will be recorded in the fourth quarter of 2021. We believe that all payments related to this plan will be made byMarch 31, 2022 . Operating Activities: Cash provided by operating activities for the nine months endedSeptember 30, 2021 consisted of a net loss of approximately$33.4 million , offset by a decrease of approximately$39.5 million of non-cash items, including stock-based compensation, depreciation and amortization, loss on extinguishment of debt of approximately$3.8 million related to the write off of debt issuance costs and provision for credit loss expense. These decreases were partially offset by an increase in accrued expenses and other of approximately$3.7 million , an increase in inventory of approximately$3.8 million , and an increase in our post-marketing commitment liability of approximately$0.9 million which were partially offset by decreases of approximately$5.8 million in accounts receivable, net and other current assets, and an increase of approximately$8.0 million in accounts payable. Cash provided by operating activities for the nine months endedSeptember 30, 2020 consisted of a net loss of approximately$45.0 million , offset by approximately$34.2 million of non-cash items, such as stock-based compensation and depreciation and amortization, an increase in accrued expense and other of approximately$21.0 million , a decrease in prepaid expenses and other of approximately$4.4 million , and a decrease in accounts receivable, net of approximately$1.8 million . These increases were partially offset by a decrease in accounts payable of approximately$6.7 million , an increase in other current assets of approximately$3.1 million and other immaterial changes. Investing Activities:
During the nine months ended
Cash used in investing activities during the nine months endedSeptember 30, 2021 consisted of approximately$38.1 million of in purchases available-for-sale securities, partially offset by maturities of approximately$22.6 million of available-for-sale securities. Net cash provided by investing activities during the nine months endedSeptember 30, 2020 consisted of approximately$57.0 million of maturities of available-for-sale securities, partially offset by the purchase of available-for-sale securities of approximately$24.4 million and an increase in intangible assets relating to the milestone achieved under the Company's license agreement with Pfizer of$10.0 million . Financing Activities: During the nine months endedSeptember 30, 2021 , net cash used in financing activities was$31.9 million . DuringJuly 2021 , we used approximately$8.5 million for the payment of prepayment costs, end of loan payment costs and other extinguishment costs related to our credit facility with Oxford, and approximately$1.9 million in payment of debt issuance costs related to the Athyrium Notes, and$20.0 million was used for installment payments relating to the milestone achieved under our license agreement with Pfizer of$20.00 million . 44
--------------------------------------------------------------------------------
Table of Contents
Oxford Loan and Security Agreement:
InOctober 2017 , we entered into a loan and security agreement with SVB, as administrative agent, and the lenders party thereto from time to time, or the Original Lenders, includingOxford Finance, LLC , or Oxford, and SVB. Pursuant to the terms of the credit facility provided for by the loan and security agreement, or the Original Credit Facility, we borrowed$50.0 million . InMay 2018 , we entered into an amendment to the loan and security agreement, which provided for an amended credit facility, or the Amended Credit Facility. Under the Amended Credit Facility, the Original Lenders agreed to make term loans available to us in an aggregate amount of$155.0 million , consisting of (i) an aggregate amount of$125.0 million , the proceeds of which, in part, were used to repay the$50.0 million we borrowed under the Original Credit Facility, and (ii) an aggregate amount of$30.0 million that we drew inDecember 2018 , which was available under the Amended Credit Facility as a result of achieving a specified minimum revenue milestone. OnJune 28, 2019 , or the Effective Date, we entered into an amendment and restatement of the loan and security agreement, which provided for a new credit facility, or the New Credit Facility, with Oxford, as collateral agent, and the lenders party thereto from time to time, including Oxford, pursuant to which we repaid the$155.0 million outstanding under the Amended Credit Facility, as well as all applicable exit and prepayment fees, owed to the Original Lenders under the Amended Credit Facility, using cash on hand and$100.0 million in new borrowings from the New Credit Facility. Under the New Credit Facility, we issued to Oxford new and/or replacement secured promissory notes in an aggregate principal amount for all such promissory notes of$100.0 million evidencing the New Credit Facility. The New Credit Facility was secured by substantially all of our personal property other than our intellectual property. We also pledged 65% of the issued and outstanding capital stock of our subsidiaries,Puma Biotechnology Ltd. andPuma Biotechnology B.V. The New Credit Facility limited our ability to grant any interest in our intellectual property to certain permitted licenses and permitted encumbrances set forth in the agreement. The term loans under the New Credit Facility bore interest at an annual rate equal to the greater of (i) 9.0% and (ii) the sum of (a) the "prime rate," as reported in The Wall Street Journal on the last business day of the month that immediately preceded the month in which the interest will accrue, plus (b) 3.5%. We were required to make monthly interest-only payments on each term loan under the New Credit Facility commencing on the first calendar day of the calendar month following the funding date of such term loan, and continuing on the first calendar day of each calendar month thereafter throughAugust 1, 2021 , or the Amortization Date. Commencing on the Amortization Date, and continuing on the first calendar day of each calendar month thereafter, we would have made consecutive equal monthly payments of principal, together with applicable interest, in arrears to each lender under the New Credit Facility, calculated pursuant to the New Credit Facility. All unpaid principal and accrued and unpaid interest with respect to each term loan under the New Credit Facility was due and payable in full onJune 1, 2024 , or the Maturity Date. Upon repayment of such term loans, we were also required to make a final payment to the lenders equal to 7.5% of the aggregate principal amount of such term loans outstanding as of the Effective Date. At our option, we were able to prepay the outstanding principal balance of any term loan in whole but not in part, subject to a prepayment fee of 3.0% of any amount prepaid if the prepayment occurred through and including the first anniversary of the funding date of such term loan, 2.0% of the amount prepaid if the prepayment occurred after the first anniversary of the funding date of such term loan through and including the second anniversary of the funding date of such term loan, and 1.0% of the amount prepaid if the prepayment occurred after the second anniversary of the funding date of such term loan and prior to the Maturity Date. 45
--------------------------------------------------------------------------------
Table of Contents
Athyrium Note Purchase Agreement:
OnJuly 23, 2021 , or the NPA Effective Date, we repaid the$100.0 million in term loans outstanding under the New Credit Facility, as well as all accrued interest, applicable exit, prepayment and legal fees owed to the lenders under the New Credit Facility in an amount of approximately$9.2 million , using cash on hand and$100.0 million in new borrowings from the issuance of notes under the note purchase agreement, or the Athyrium Notes, that we entered into on the NPA Effective Date with Athyrium Opportunities IV Co-Invest 1 LP, or, together with its affiliates, Athyrium, as administrative agent, and the purchasers party thereto from time to time, or the Purchasers, including Athyrium. Pursuant to the Athyrium Notes, the Purchasers agreed to purchase from us, and we agreed to issue to such Purchasers, notes payable by us. On the NPA Effective Date, we issued to the Purchasers notes in an aggregate principal amount for all such notes of$100.0 million . Subject to satisfaction of certain conditions set forth in the Athyrium Notes,$25.0 million in additional notes remains available to us under the Athyrium Notes. The obligations of the Company under the Athyrium Notes are secured by substantially all of our assets, including our intellectual property. We also pledged 65% of the issued and outstanding capital stock of our subsidiaries,Puma Biotechnology Ltd. andPuma Biotechnology B.V. The notes bear interest at an annual rate equal to the sum of (a) 8.0% and (b) Adjusted Three-Month LIBOR for such Interest Period (as defined in the Athyrium Notes). We are required to make quarterly interest payments on each note issued under the Athyrium Notes commencing on the last business day ofSeptember 2021 , and continuing on the last business day of each March, June, September and December throughJune 30, 2024 , or the NPA Amortization Date. Commencing on the NPA Amortization Date, and continuing on the last day of each March, June, September and December thereafter, we will make consecutive equal quarterly payments of principal, together with applicable interest, in arrears to each Purchaser, calculated pursuant to the Athyrium Notes. All unpaid principal and accrued and unpaid interest with respect to each note issued under the Athyrium Notes is due and payable in full onJuly 23, 2026 , or the NPA Maturity Date. At our option, we may prepay the outstanding principal balance of all or any portion of the principal amount of the notes, subject to a prepayment fee equal to (i) a make-whole amount if the prepayment occurs on or prior to the second anniversary of the NPA Effective Date and (ii) 2.0% of the amount prepaid if the prepayment occurs after the second anniversary of the NPA Effective Date by on or prior to the third anniversary of the NPA Effective Date. Upon prepayment or repayment of all or any portion of the principal amount of the notes (whether on the NPA Maturity Date or otherwise), we are also required to pay an exit fee to the Purchasers equal to 2.00% of the aggregate principal amount of such notes prepaid or repaid. The Athyrium Notes include affirmative and negative covenants applicable to us, our current subsidiaries and any subsidiaries we create in the future. The affirmative covenants include, among others, covenants requiring us to maintain our legal existence and governmental approvals, deliver certain financial reports, maintain insurance coverage and satisfy certain requirements regarding deposit accounts. We must also (i) maintain a minimum amount of unrestricted cash in deposit accounts subject to a control agreement in favor of Athyrium at any time and (ii) achieve at least a specified minimum amount of revenue (based on a combination of both sales of NERLYNX inthe United States and royalty revenues received by us for sales of NERLYNX outsidethe United States ), measured as of the last day of each four consecutive fiscal quarter period. The negative covenants include, among others, restrictions on our transferring collateral, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other distributions, making investments, creating liens, selling assets and suffering a change in control, in each case subject to certain exceptions. 46
--------------------------------------------------------------------------------
Table of Contents
The Athyrium Notes also include events of default, the occurrence and continuation of which could cause interest to be charged at the rate that is otherwise applicable plus 2.0% and would provide Athyrium, as administrative agent, with the right to exercise remedies against us and the collateral securing the new credit facility, including foreclosure against the property securing the obligations of us under the Athyrium Notes, including our cash. These events of default include, among other things, our failure to pay principal or interest due under the Athyrium Notes, a breach of certain covenants under the Athyrium Notes, our insolvency, a material adverse change, the occurrence of any default under certain other indebtedness in an amount greater than$750,000 and one or more judgments against us in an amount greater than$750,000 individually or in the aggregate that remains discharged or otherwise satisfied, in each case, as further described in the Athyrium Notes. As ofSeptember 30, 2021 , there were$102.0 million in term loans outstanding under the Athyrium Notes, representing all of our long-term debt outstanding as of that date, and we were in compliance with all applicable covenants.
Current and Future Financing Needs:
We did not receive or record any product revenues until the third quarter of 2017. We have spent, and expect to continue to spend, substantial amounts in connection with implementing our business strategy, including our planned product development efforts, our clinical trials, our research and development efforts and our commercialization efforts. We may choose to begin new research and development efforts or we may choose to launch additional marketing efforts. These efforts may require funding in addition to the cash and cash equivalents totaling approximately$63.9 million and$23.6 million in marketable securities available atSeptember 30, 2021 . While our consolidated financial statements have been prepared on a going concern basis, we expect to continue incurring significant losses for the foreseeable future and will need to generate significant revenue to sustain operations and successfully commercialize neratinib. While we have been successful in raising financing in the past, there can be no assurance that we will be able to do so in the future. Our ability to obtain funding may be adversely impacted by uncertain market conditions, including the global COVID-19 pandemic, our success in commercializing neratinib, unfavorable decisions of regulatory authorities or adverse clinical trial results. The outcome of these matters cannot be predicted at this time. In addition, we have based our estimate of capital needs on assumptions that may prove to be wrong. Changes may occur that would consume our available capital faster than anticipated, including the length and severity of the COVID-19 pandemic and measures taken to control the spread of COVID-19, as well as changes in and progress of our development activities, the impact of commercialization efforts, acquisitions of additional drug candidates and changes in regulation. Potential sources of financing include strategic relationships, public or private sales of equity or debt and other sources of funds. We may seek to access the public or private equity markets when conditions are favorable due to our long-term capital requirements. If we raise funds by selling additional shares of common stock or other securities convertible into common stock, the ownership interests of our existing stockholders will be diluted. If we are not able to obtain financing when needed, we may be unable to carry out our business plan. As a result, we may have to significantly limit our operations, and our business, financial condition and results of operations would be materially harmed. In such an event, we will be required to undertake a thorough review of our programs, and the opportunities presented by such programs, and allocate our resources in the manner most prudent.
Non-GAAP Financial Measures
In addition to our operating results, as calculated in accordance with generally accepted accounting principles, or GAAP, we use certain non-GAAP financial measures when planning, monitoring, and evaluating our operational performance. The following table presents our net loss and net loss per share, as calculated in accordance with GAAP, as adjusted to remove the impact of stock-based compensation. For the three and nine months endedSeptember 30, 2021 , stock-based compensation represented approximately 9.5% and 18.7% of our operating expenses, respectively, compared to 14.3% and 16.6% for the same respective periods in 2020, in each case excluding cost of sales. Our management believes that these non-GAAP financial measures are useful to enhance understanding of our financial performance, are more indicative of our operational performance and facilitate a better comparison among fiscal periods. These non-GAAP financial measures are not, and should not be viewed as, substitutes for GAAP reporting measures. 47
--------------------------------------------------------------------------------
Table of Contents Reconciliation of GAAP Net Loss to Non-GAAP Adjusted Net Loss and GAAP Net Loss Per Share to Non-GAAP Adjusted Net Loss Per Share (in thousands except share and per share data) For the Three Months Ended For the Nine Months Ended September 30, September 30, 2021 2020 2021 2020 GAAP net loss$ (44,672 ) $ (31,463 ) $ (33,350 ) $ (45,001 ) Adjustments: Stock-based compensation - Selling, general and administrative (1) 2,950 4,101 23,282 13,523 Research and development (2) 1,332 3,464 5,099 13,579 Non-GAAP adjusted net loss$ (40,390 ) $ (23,898
)
GAAP net loss per share-basic$ (1.09 ) $ (0.79 ) $ (0.82 ) $ (1.14 ) Adjustment to net loss (as detailed above) 0.10 0.19 0.70 0.69 Non-GAAP adjusted basic net loss per share (3) (4)$ (0.99 ) $ (0.60
)
GAAP net loss per share-diluted$ (1.09 ) $ (0.79 ) $ (0.82 ) $ (1.14 ) Adjustment to net loss (as detailed above) 0.10 0.19 0.70 0.69 Non-GAAP adjusted diluted net loss per share (5) (6)$ (0.99 ) $ (0.60 ) $ (0.12 ) $ (0.45 ) (1) To reflect a non-cash charge to operating expense for selling, general, and administrative stock-based compensation. (2) To reflect a non-cash charge to operating expense for research and development stock-based compensation. (3) Non-GAAP adjusted basic net loss per share was calculated based on 40,813,609 and 40,520,041 weighted-average shares of common stock outstanding for the three and nine months endedSeptember 30, 2021 , respectively. (4) Non-GAAP adjusted basic net loss per share was calculated based on 39,695,444 and 39,473,691 weighted-average shares of common stock outstanding for the three and nine months endedSeptember 30, 2020 , respectively. (5) Non-GAAP adjusted diluted net loss per share was calculated based on 40,813,609 and 40,520,041 weighted-average shares of common stock outstanding for the three and nine months endedSeptember 30, 2021 , respectively. (6) Non-GAAP adjusted diluted net loss per share was calculated based on 39,695,444 and 39,473,691 weighted-average shares of common stock outstanding for the three and nine months endedSeptember 30, 2020 , respectively.
Off-Balance Sheet Arrangements
We do not have any "off-balance sheet agreements," as defined by
Contractual Obligations InJune 2020 , we entered into a letter agreement, or the Letter Agreement, with Pfizer relating to the method of payment associated with our achievement of a milestone that triggered a$40.0 million payment under our license agreement with Pfizer. The Letter Agreement permitted us to make the milestone payment in installments with the majority of the amount payable to Pfizer (including interest) bySeptember 2021 . All amounts related to the Letter Agreement were paid in full duringAugust 2021 . Other than as described in the preceding paragraph, there have been no material changes outside the ordinary course of business to our contractual obligations and commitments as described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . 48
--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source